Large banks need to hold more capital in new ruling

BRUSSELS: The largest global banks will have to hold more capital and liabilities than previously reported that can automatically be written off in a crisis – as much as a quarter of risk-weighted assets – as regulators take on lenders deemed too big to fail.

The Financial Stability Board (FSB) is developing minimum standards that will limit the double-counting of capital banks use to meet existing international rules, according to an FSB working document sent for comment to Group of 20 governments and obtained by Bloomberg News.

The restriction means that, while the basic requirement will be set at 16% to 20% of riskweighted assets, the final number will be higher because the banks must separately meet “other regulatory capital buffers,” according to the document, dated Sept. 21. The FSB in Basel, Switzerland, declined to comment on the document.

“These standards are an important step in developing a strategy which will limit taxpayers’ exposure to failing banks, but of course a lot of work still has to be done to determine how much flexibility national regulators will have or even need when applying the rules,” said Richard Reid, a research fellow at the University of Dundee. — Bloomberg